1. Forms
2. DP
3. DP-00-03

Dwelling Property 3 - Special Form (DP 00 03)

The Dwelling Property 3 - Special Form, commonly referred to as the DP-3, is a type of insurance policy that provides robust coverage for residential properties that may not qualify for a standard homeowners (HO) policy. It is widely recognized for offering the broadest protection within the Dwelling Property program. The DP-3 provides "open perils" (often called "all-risk") coverage on the dwelling (Coverage A) and other structures (Coverage B), meaning these structures are covered for all direct physical losses except those specifically excluded in the policy. In contrast, personal property (Coverage C) is typically covered on a "named perils" basis, meaning it's only protected against the specific causes of loss listed in the policy.

Classes of Business It Applies To

The DP 00 03 is primarily designed for individually owned residential dwellings that are not owner-occupied or do not meet the eligibility requirements of a homeowners policy. Common scenarios include:

• Rental Properties: This is a very common use for the DP-3. For example, an individual who owns a single-family home, duplex, triplex, or fourplex and rents it out to tenants would typically use a DP-3 policy. It can cover dwellings with up to four units.
• Vacation Homes or Secondary Homes: Dwellings that are not the insured's primary residence and are used seasonally or occasionally.
• Dwellings Occupied by Others: Homes occupied by family members where the owner does not reside.
• Dwellings Under Construction: While specialized endorsements might be needed, the DP program can cover dwellings being built.
• Properties Held in Trust or by an LLC: In some cases, properties owned by entities rather than individuals might be insured on a DP-3, though specific carrier guidelines apply.
• Older Homes or Homes with Lower Values: Sometimes, homes that don't meet a carrier's criteria for a homeowners policy due to age, condition, or value might be eligible for a DP-3, though underwriting scrutiny will be high.

It's important to note that the DP-3, like other dwelling property forms, primarily covers physical damage to the property and does not automatically include liability coverage, which must typically be added by endorsement or a separate policy.

Special Considerations

Several factors distinguish the DP 00 03 and warrant careful consideration:

• "Open Perils" for Structures vs. "Named Perils" for Personal Property: This is a critical distinction. While the dwelling and other structures enjoy broader coverage, the insured's personal property is only covered for perils explicitly listed (e.g., fire, lightning, windstorm, theft, etc., depending on the specific policy language and endorsements). For example, if water damage from a burst pipe (not due to freezing) damages the dwelling, it would likely be covered under open perils (unless excluded). However, if that same burst pipe damages the tenant's personal property, it would only be covered if "water damage from a burst pipe" is a named peril for Coverage C.
• Burden of Proof: Under an open perils policy for Coverages A and B, if a loss occurs, the burden is generally on the insurance company to prove that the cause of loss is excluded. For Coverage C (personal property), the burden is on the insured to prove the loss was caused by a listed named peril.
• Exclusions: Despite being "open perils," Coverage A and B are still subject to specific exclusions. Common exclusions can include neglect, intentional loss, mold (unless resulting from a covered peril), earth movement, flood (requires a separate policy), power failure, ordinance or law, war, and nuclear hazard. For instance, damage from a flood would not be covered by the DP-3.
• Liability Coverage: The DP 00 03 does not inherently include personal liability or medical payments coverage. This is a significant difference from homeowners policies. Landlords, for example, would need to add a personal liability supplement (like ISO form DL 24 01) or obtain a separate liability policy to cover their exposure to lawsuits from tenants or guests injured on the property.
• Fair Rental Value and Additional Living Expense (Coverages D & E): The DP-3 typically includes Coverage D - Fair Rental Value, which covers lost rental income if a covered peril makes the part of the residence rented to others or held for rental unfit for its normal use. It may also include Coverage E - Additional Living Expense if the insured occupies a portion of the dwelling and a covered loss makes it uninhabitable. The limit for these coverages is often a percentage (e.g., 20%) of the Coverage A limit and, unlike the DP-1, their use generally does not reduce the Coverage A limit.
• Vacancy Clause: Policies often have a vacancy clause that can limit or exclude coverage (especially for perils like vandalism, building glass breakage, and theft) if the dwelling has been vacant for a specified period (e.g., more than 60 consecutive days) before the loss. A dwelling under construction is not typically considered vacant.

Key Information for Agents and Underwriters

Agents and underwriters should focus on the following when dealing with the DP 00 03:

• Risk Assessment:
  • Occupancy: Is it tenant-occupied, owner-occupied (less common for DP-3 unless ineligible for HO), vacant, or seasonal? Tenant-occupied properties present different risks than owner-occupied ones.
  • Condition and Age of Dwelling: Older homes may have higher risks associated with plumbing, electrical, and HVAC systems. The overall maintenance and upkeep are crucial. An older dwelling might not be acceptable for a DP-3 unless significant updates have been made.
  • Replacement Cost Valuation: Ensuring the dwelling (Coverage A) is insured to at least 80% of its replacement cost is vital for replacement cost loss settlement (if applicable) and to avoid coinsurance penalties. Some carriers may require insuring to 100% of replacement cost. The value of the land should not be included in the dwelling coverage amount.
  • Loss History: An applicant's prior loss history is a critical underwriting factor.
  • Protection Class: The proximity and quality of fire protection services influence risk.
  • Specific Hazards: Presence of swimming pools, trampolines, or certain dog breeds may require specific underwriting attention or exclusions, especially if liability coverage is added.
• Pricing: The DP-3 is generally more expensive than the DP-1 (Basic Form) or DP-2 (Broad Form) due to its broader "open perils" coverage for the dwelling. Factors influencing premium include the Coverage A limit, deductible amounts, location, construction type, age, protection class, and any endorsements added.
• Coverage Gaps and Endorsements:
  • Liability: As mentioned, this is a major gap. Always discuss options for adding liability coverage.
  • Personal Property: Coverage C is for named perils. Consider if the client needs broader "open perils" coverage for personal property (though less common on a DP-3, some carriers might offer it via endorsement, or it might necessitate a different policy type). Also, assess if the automatic Coverage C limit (often a percentage of Coverage A or a flat amount) is adequate. Special limits apply to certain categories of personal property (e.g., money, jewelry, firearms).
  • Theft of Personal Property: While often a named peril for Coverage C, limitations may apply, especially for property away from the premises or in vacant dwellings.
  • Water Backup and Sump Overflow: This is often excluded but can frequently be added back via endorsement for an additional premium.
  • Ordinance or Law: The base DP-3 typically excludes increased costs due to the enforcement of any ordinance or law. Endorsement DP 04 74 or similar can provide this coverage.
  • Functional Replacement Cost: For older homes or unique structures where replacement with modern materials is more practical, the Functional Replacement Cost endorsement (e.g., DP 05 30) might be appropriate if the insured agrees to it, as it settles losses based on the cost to repair or replace with functionally equivalent (but not necessarily identical) materials.
• Underwriting Guidelines:
  • Each insurer will have its own specific underwriting guidelines regarding eligibility, maximum Coverage A limits (e.g., risks over $750,000 may require home office approval), acceptable property conditions, and prohibited risks (e.g., proximity to brush fire zones).
  • Dwellings with more than four units are generally ineligible and would require a commercial property policy.
  • Careful attention should be paid to how other structures (Coverage B) are used, especially if there's any business use beyond a private garage.
• Comparison with Commercial Property: For insureds with multiple rental dwellings, a Commercial Property Policy (e.g., CP 00 10 with Special Causes of Loss form CP 10 30) might be an alternative to multiple DP-3 policies. While coverages can be comparable, there are differences in insuring agreements, how covered property is defined, and potentially in how Fair Rental Value is handled, which need careful review. A commercial policy can simplify management by covering multiple locations under one policy.

The DP 00 03, when properly underwritten and tailored with appropriate endorsements, offers excellent property protection for a wide range of non-owner-occupied dwellings and other eligible residential properties. Understanding its nuances is key for insurance professionals to adequately protect their clients' assets.